Philippines Central Bank Statement

Author: | Published: 5 Sep 2017

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Philippine economic growth continued to gain traction,
recording a 6.4% output in expansion in Q1 2017. At this rate,
it has maintained the growth momentum above the 10-year average
of 5.6% amidst the protracted uncertainty and volatility in the
global economic landscape. The growth performance of the
Philippines has been secured by firm domestic demand dynamics,
with consumption, government spending and investments remaining
robust. Business confidence remained highly positive while
consumer optimism reached an all-time high in Q2 2017.

Sound macroeconomic policies have anchored the stability and
growth prospects of the economy. Monetary policy settings have
been attuned to domestic developments and focused on keeping
inflation within the target of 2% – 4% for 2017-18.
The banking system is also efficient and stable, supported by
sound supervisory and risk-based regulations. Liquidity and
credit continue to grow at a reasonable pace. Meanwhile, the
national government has committed to restructure the tax system
and ramp up investments in physical and human capital to propel
growth. These fundamentals are expected to further buoy
momentum and sustain the country's economic track record.

We are cognizant however of the risks in the horizon, which
could derail our objective to attain sustainable and inclusive
growth. While latest indicators show that global economic
activity is firming up, policy uncertainty in some advanced
economies such as the United States poses challenges to the
sustainability of this recovery. Moreover, amidst the
improvement in global demand, the subdued global inflation
environment creates pressures for the trajectory of monetary
policies of major central banks. Emerging economies including
the Philippines remain vigilant on how global developments will
alter the normalisation path of the US Federal Reserve, the
European Central Bank and the Bank of Japan.

Against this backdrop, capital flows and overall risk
sentiment may be affected by the twists and turns of the global
economy. This implies that authorities, including the Bangko
Sentral ng Pilipinas (BSP), need to remain attentive to and
contend with volatility. In 2016, we also learned that everyone
is susceptible to black swan events and negative surprises.
Hence, it remains imperative to keep our house in order,
maintain policy flexibility, and build substantial buffers to
dampen the impact of headwinds to domestic growth.

In the domestic sphere, inflation remains benign although
the balance of risks to the inflation outlook remains tilted
towards the upside. While there may be potential transitory
impact of the proposed tax reform program, social safety nets
are expected to mitigate the resulting inflationary pressures.
The long-run effects on productivity will improve overall
supply and further dampen inflation. Nevertheless, inflation
expectations remain anchored in the official target. Meanwhile,
prospects for the global economy have improved, but risks to
external demand remain tilted to the downside. The BSP is
committed to stay the course with sound monetary and financial
policies, in order to bring about price and financial stability
and increase the resilience of the Philippine economy.